WinnerLex tax attorneys have successfully defended the interests of the client in a million tax dispute.

Quite well known is the position of the tax authorities, by which the absence of the contractor’s staff of the to perform the work is an evidence that such a counterparty could not perform the disputed services, and as a consequence of that they establish unreality of transactions and accrue taxes and penalties.
In addition, in their view, the exacerbating factor for the guiltiness is the lack of feasibility of the costs incurred, and such absence is determined by the tax auditors themselves.

However, this fiscal position is considered rather doubtful, since the diversity of economic activities may have its own specific features and provide for different forms of cooperation.

And it is very important for taxpayers to thoroughly investigate and challenge the violations contained in the audit act, as such violations can only be manifested by the inspectors’ assumptions and subjective opinions, which are then disproved in the courts.

As an example is one of the most recent tax cases won by WinnerLex attorneys.

During the subscription service we constantly monitor the legal security of clients on various issues. That is why we knew in advance about scheduled on-site tax audit of our constant client and prepared for it together. Also, during the tax audit, our tax attorneys managed to prevent significant tax accruals only as a result of providing substantiated written explanations in for the tax authority’s groundless claims.

However, the tax authorities still left part of the violations in the act of inspection, and therefore the client was forced to go to court, which was done by us very promptly, since we already had all the details of the situation. And as a result: it has been proven in court that all the episodes of violation in the act of inspection are illegal and unjustified, and the tax notification-decision amounting to about UAH 1 million was canceled in its entirety.

We want to share the effective arguments of our judicial strategy which in fact were found by the court to be the most important for making a positive court decision:

1. The absence of the plaintiff’s counterparties of material and labor resources does not exclude the possibility of real execution of the economic operation by him and does not indicate the receipt the unreasonable tax benefit of the buyer, since the involvement of employees is possible under contracts of civil nature, outsourcing and outstaffing (staff leasing).
   Similar legal findings were made by the Supreme Court in its rulings dated 30.01.2018 in case No. 2a/1770/3360/12, 19.06.2018 in case No. 826/7704/16.
2. The absence of the number of employees, technical, transport, other production resources of the plaintiff’s counterparty necessary for the economic activity, the absence at the legal address at the time of reconciliation does not indicate the absens of real goods turnover by the supply agreements with the plaintiff. A similar position is set out in the Supreme Court ruling of 16.01.2018 No. K/9901/873/18.
3. When conducting business transactions, the taxpayer may also be ignorant of the true status of its counterparties and actually receive goods (works or services) from them, despite the fact that counterparties may and intentionally violate tax laws. Similar conclusions are made in the Supreme Court of Ukraine’s judgments of March 5, 2012 in case No. 21-421a11 and of September 22, 2015 in case No. 810/5645/14, and in the Supreme Court’s judgments of February 20, 2018 in case No. 826/6280/13-a (administrative proceedings No. K/9901/2848/18), of 06 March 2018 in Case No. 2a-9375/11/1370 (administrative aroceedings No. K/9901/5919/18), and of 13 March 2018 at Case No. 826/13582/13-a (administrative proceedings No. K / 9901/19905/18).
4. With regard to the defendant’s assertion that the drivers worked without days off, the court notes that each company independently determines the organizational rules of its business activities. In addition, as stated above and confirmed by the defendant in the act of inspection, these drivers worked under civil contracts, which provides for an independent definition of the process of work, without taking into account the rules of internal labor regulations.
5. Absence of a counterparty’s income for a certain period can in no way testify to the unreality of a business transaction between him and the claimant.
6. The reference of the supervisory authority to the tax information available in the information and analytical bases regarding the plaintiff’s counterparties as a criterion for assessing the reality of business transactions is unreasonable, since such information is not based on direct analysis of primary documents and is not proper evidence in the understanding of the procedural law. Such tax information indicates only a possible tax evasion by the supplier counterparties.
7. Violation by certain suppliers of goods (works, services) in the supply chain of tax legislation or business rules cannot be grounds for accusing a buyer of goods (works, services) violating the requirements of the law on tax credit formation, so the taxpayer (buyer of goods (works), services) can not be negativly affected, in particular in the form of deprivation of the right to a tax credit, for possible illegal activity of his counterparty, provided that the court did not establish facts indicates the awareness of the taxpayer of such behavior of the counterparty and the coherence of actions between them.

Though the tax authority gave an appeal against the decision of the court of first instance, the administrative court of appeal returned it without opening proceedings and the decision came into force.
And as always, in addition to the costs of court fees, we were judicially reimbursed from the state budget for the client’s costs of legal aid in the amount of 20 925,00 UAH, which are now fully returned to the client.

This case is a particularly striking example of the fact that effective interaction with the client, both during the ongoing subscriber service and in preparation for the tax inspection and the appeal of its results, is always important and economically justified.

WinnerLex’s team of tax attorneys Anna Vinnychenko and Yulia Yarotska assisted with the tax audit and the client’s case in court.